Ask the experts: How can investors benefit from the boom in "clean"
ways to generate electricity? We look at the options

When we asked on our Facebook page for your questions on investing, this one from Jackie Kevan was the first we received:

"I'm a total beginner – would like to invest in green energy that will make me some money. Any ideas?"

We asked an investing expert in the shape of Carl Lamb, the head of financial advice firm Almary Green, to help answer Jackie's question, and have thrown in some thoughts of our own. As Jackie is a compete newcomer to investing, we have sought to use the simplest possible language and avoid the jargon loved by City professionals.

Why is green energy attractive to investors?

As Carl pointed out, "with the Government intent on providing up to 15pc of energy from renewable sources by 2020, it’s little surprise that green energy has got investors hot under the collar".

But he immediately added a health warning: green energy, when it comes to investing your money, is still a "niche" or specialist area – it is not a "mainstream" investment in the way that, say shares in the big energy companies are.

This means that the risks are higher and it may not be an ideal place to start if, like Jackie, you are completely new to investing. We'll look at her safer options below, but first Carl explains the various ways to invest in green energy via the stock market.

Green energy Shares

There aren’t that many green energy companies on the stock market, Carl said, and those that are tend to belong to London's "junior" market for small, recently established firms. This market is called "Aim" for the Alternative Investment Market.

Good Energy is one of the green energy companies to be found here; another is Renewable Energy Generation, which develops small wind farms, some of which it sells to raise funds to build more sites.

Companies on Aim are seen as more risky than those on the main stock market. Infinis, which operates power stations that burn gas produced by landfill sites as well as onshore wind farms and hydroelectric plants, is an example of a green power company on the "grown-up" stock market.

Carl stressed: "Unlike the big energy companies and large corporations we see in the FTSE 100, green energy companies are smaller, much more niche and carry with them more risk." He said the golden rule was not to put all your eggs in one basket but to diversify your holdings.

Green energy funds

To reduce the risk that comes with putting your money into a single company, which could go bust for any number of reasons, why not spread the risk by buying shares in a variety of different ones?

This can be done easily with a single purchase if you buy a "fund". Here, a professional investor takes your money (and other people's) and uses it to buy stakes in companies that he or she feels will make good investments. Fund managers can call on research that they, their team or other firms can carry out. Funds, as well as shares, can be held in Isas to save you tax.

A particular type of fund called "investment trusts" proved the most popular way to invest into green energy in 2013, Carl said. He added: "There are several to choose from – if you like solar power there are the Bluefield Solar Income fund and the Foresight Solar fund if solar is your preferred choice, or there's Greencoat UK wind for those with an interest in wind energy."

Because these funds are designed to attract investment into small companies, they offer generous tax benefits. "But they are therefore still risky investments and you must be prepared to hold the shares for at least five years," Carl said.

He added: "The clean technology sector remains very niche; most of the companies operating in this area are still in the start-up or early stages and are therefore a risky bet for investors.

"For those looking to invest in green technology, you want to choose power generation projects that are employing proven technologies created by large companies rather than using your money to provide early funding for technologies that may or may not prove feasible."

Green energy bonds

Buying their shares is not the only way to get a return from green energy firms. Some of these companies sell "bonds" to investors. If you buy a bond you are lending money to the company and in return it will pay you interest. This regular income can be much more than you would get in a savings account – sometimes 6pc or even 7pc. Normally the bond will be repaid after a set number of years, when you get your original money back and the interest payments stop.

Among the green energy firms to have issued bonds to individual investors recently are CBD Energy, whose bonds pay 6.5pc annual interest, Good Energy (7.25pc), Ecotricity (6.5pc) and Secured Energy Bonds (6.5pc). But to invest you would need to buy the bonds when they were first issued – these particular bonds are not available on the stock market.

Although bond prices tend to rise and fall less than share prices, there are still important risks. If the company that issues the bonds goes bust, interest payments will cease and you are almost certain to lose some or all of your original investments. And, unlike savers with a bank, you will not be protected by the government-backed compensation scheme.

Again, spreading your money among different companies is a good idea if you want to take the bond route.

Solar panels

You may not see them as an investment in the way that shares are, but solar panels on your roof can provide a steady income – potentially much higher than you would get from a savings account. Many investors look more for a good income than for a rise in the value of their holdings.

Carl said: "What makes the investment case for solar panels so alluring to many people is the fact that it doesn’t involve banks or financial advisers. All that is needed is themselves and a roof.

"Many people are tempted to the green side by the prospect of waving goodbye to high electricity bills while earning a decent return on the side. For every unit of electricity you generate through your solar panels, you are paid a 'feed-in' tariff. While this was a generous 40p per unit (kilowatt hour) when first launched, with a lock-in rate of 25 years, this has been cut significantly and is now less than 50pc of what it once was.

"Do not forget that you will need to make an initial investment of several thousand pounds in order to reap the benefit and your savings will depend on how much solar energy you generate, the system you opt for and whether you are using the energy during daylight hours.”

Other ways to start investing

Most expert investors would advise newcomers against choosing a specific type of company as their first investments. Many other options exist; we outlined the best ways to get going in our recent story, Make 2014 the year you start investing.